0% Swiss Interest Rate: Should Indian Investors Shift Strategy Now?

2025 has already been a difficult year for investors and financial markets. Volatility in equity markets, fluctuating commodity prices, and mixed corporate earnings have made portfolio decisions anything but easy for investors. Amidst all this uncertainty, in a recent bold and unexpected move, the Swiss central bank cut rates to zero, raising concerns in developing economies. On June 19, 2025, the Swiss National Bank rate cut reduced its benchmark rate by 25 basis points, bringing it down to 0%¹.

For global investors, especially Indian investors, this 0% interest rate impact is real. When developed markets like Switzerland offer near-zero returns, that capital starts searching for returns elsewhere, including emerging markets like India.

Is this an opportunity for India to accumulate more capital or another threat to the Indian market? Let us understand.

The Swiss Rate Cut

The Swiss central bank cuts rates to zero to support its economy amid cooling inflation and a strong Swiss currency (the Franc). The Swiss franc appreciated by more than 10% reducing import costs and weakening domestic pricing power². 

Due to the currency appreciation, this is the first time Switzerland has returned to a zero interest rate policy since the negative rates in 2022³. This announcement has come at a time when the global economic outlook is already shaky, central banks are focusing on rate cuts, and investors are desperate for returns. 

Why Did The SNB Cut Rates To Zero? 

The primary reasons behind the SNB's decision are:

1. Falling Inflation Pressure: Switzerland has been struggling with a very low inflation for a while. The inflation has steadily declined, reaching 0% in April 2025 and now moving into negative territory⁴. Hence, a 0% interest rate impact aims to prevent a deflationary spiral, where falling prices discourage spending.
2. Currency Strength: The Swiss Franc is often seen as a safe-haven currency, which appreciates significantly during global uncertainties. A strong Franc makes Swiss exports more expensive, impacting the nation's trade balance. Lowering interest rates makes the Franc less attractive to international investors, thereby strengthening the currency.
3. Economic demand: With this rate cut, they have made borrowing virtually free. The SNB aims to incentivise businesses to invest and expand in the country and consumers to spend, thereby boosting overall economic growth. 

How Global Markets React To 0% Interest Rates

The Swiss National Bank rate cut can influence global capital flows. The financial instruments in the Swiss market are facing lows with the ongoing policy changes. 

Securities like Swiss government bonds, which were already trading at ultra-low yields, saw their prices rise and returns dip even further. The 2-year Swiss government bond is now yielding ?0.07%⁵.

Investors looking for higher yields might shift their funds away from Switzerland, which may potentially strengthen other currencies and push down bond yields in other developed markets. This will trigger a move towards bond investing in a low interest environment globally.

What This Means For Indian Investors

While India's economic fundamentals and monetary policy are different, the global liquidity and interest rate trends always influence the financial markets. 

Impact Of Global Rate Cuts On Indian Bonds:

In general, lower global interest rates can make Indian assets, including bonds, more attractive to foreign investors seeking higher returns. India is currently keeping its monetary policy tight as the RBI has set the repo rate at a relatively higher 5.5%⁶. 

Foreign Institutional Investors (FIIs) also move towards putting more money into Indian bonds to earn that higher yield in such scenarios. This is clearly demonstrated from the FII and DII data till June 20,2025. FIIs bought INR 7,940 crore net on June 20 alone⁷. 

When a major central bank like the SNB implements such a drastic rate cut, it can lead to lower borrowing costs for Indian companies too. Even within India, better global financial conditions can encourage more companies to issue bonds, giving Indian investors more chances to invest in corporate bonds with good returns.

These rate cuts could bring more foreign investments in India. For investors, this is a win-win: more bond options and the chance for existing bonds to increase in value if RBI follows the rate cuts.

Why Indian Fixed-Income Products Look Attractive Now

Let us say a Swiss investor who used to earn 1% on 10-year bonds now earns nearly 0%. That pushes them to seek yield elsewhere, potentially in emerging market bonds or high-yield corporate bonds.

The Indian fixed income markets remain attractive due to India’s fiscal discipline, stable currency management by RBI, and strong economic growth prospects.

Indian fixed-income products still offer relatively attractive returns compared to many global counterparts. Indian instruments offering 6–9% returns appear lucrative to domestic and foreign investors.

Here are some of the most common fixed-income instruments that yield higher returns:

1. Government Securities (G-Secs): These are one of the safest debt instruments backed by the Government of India⁸. They offer yields in the range of 6% to 6.5%, making them ideal for conservative investors prioritising capital safety. Unlike the US 10-year treasury bonds, giving only 4.3% yield⁹. 

2. Tax-Free Bonds: Issued by government-backed entities, these bonds offer post-tax returns of 5.75% to 6.5%, as the interest earned is exempt from income tax under Section 10(15) of the Income Tax Act. 
3. Corporate Bonds: High-rated corporate bonds, particularly those with AAA credit ratings, provide returns ranging from 8% to 8.5%. While they come with slightly more credit risk compared to G-Secs, the higher yield compensates for it, especially when issued by financially strong companies.

Bond Investment Platforms in India, like Grip Invest make these accessible to retail investors.

Bonds In A Low-Rate Era: What Changes Now?

The scenario for bond investing in a low interest rate environment has changed drastically. Investors are shifting towards safer investment instruments.

1. Why Government Bond Yields Are Falling

The potential increase in demand for Indian bonds might push bond yields down slightly, because when demand increases, prices go up and yields go down. However, India’s domestic inflation, which is still around 2.8% (as of May 2025), will likely keep bond yields from falling much. So, even with increased foreign demand, Indian yields will remain higher than those in developed markets.

This explains how bond yields and rate cuts are interlinked.

2. Are Corporate Bonds a Better Bet Today?

One such attractive alternate investment in 2025 is corporate bonds, especially from countries like India with a stable economic outlook. For instance, a Swiss sovereign bond may offer a 0% yield, while an Indian AAA-rated corporate bond could yield around 8%. This difference of 800 basis points, known as the credit spread, makes Indian corporate bonds significantly more appealing from a return perspective. 

The Rise Of Alternative Investments In 2025

With traditional bonds underperforming, investors globally are shifting towards alternate investments in 2025.

Top Alternatives When Bond Yields Drop

These are now among the best alternate investments in India, especially with platforms making them accessible digitally.

Smart Portfolio Moves in a Zero-Rate World

In the market, where rates could fluctuate, floating-rate bonds can benefit. Their interest payments change with a benchmark rate, which protects you if rates suddenly jump up. Also, focusing on bonds that mature sooner (short-term bonds) means your money isn't tied up for too long, letting you reinvest at potentially better rates if things change.

To build a strong income-generating portfolio in this environment, you can consider the following:

1. Check Credit Quality: When aiming for higher returns, always make sure the companies or governments you're lending to are financially strong.

2. Manage How Long Your Money is Locked Up: For bond investments, you can look for strategies like “Barbell strategy” or any other investment strategy that serves your goal. These strategies help you diversity for both short term and long term. This means investing in very short-term bonds (for easy access and flexibility) and some in longer-term bonds (to get slightly higher returns).

3. Explore Fixed Income Alternatives: Look beyond just bank fixed deposits. Consider options like high-yield deposits and RBI-regulated bonds. Many of these offer fixed and safe returns.

Conclusion

In an environment shaped by unexpected moves like the Swiss National Bank’s rate cut, global financial dynamics are clearly shifting. For investors, this reinforces the need to adapt, by diversifying across a mix of traditional and alternative assets that can offer better stability and yield potential. The key lies in staying informed, staying flexible, and choosing investments that align with long-term goals.

Platforms like Grip Invest make it easier to discover and access high-yield, fixed-income opportunities that go beyond conventional choices.

FAQs On Swiss Rate Cut

1. What happens to bond yields when interest rates are cut to zero?
When interest rates fall, existing bonds with higher rates become more valuable, pushing their prices up and yields down. New bonds are issued at lower rates, which reduces future income potential.

2. What’s the impact of zero interest rates on fixed-income portfolios?
Portfolios generate less yield and may underperform inflation. Investors shift towards longer durations, high-yield corporate debt, or alternate asset classes.

3. What is the interest rate cut at the Swiss National Bank?
On June 19, 2025, the SNB reduced its benchmark interest rate by 25 basis points, bringing it down to 0%. The move aims to combat deflation and counter the negative effects of a strong franc.

References:

1. SNB, accessed from: https://www.snb.ch/en/publications/communication/press-releases-restricted/pre_20250619_2

2. BST Europe, accessed from: https://bst-europe.eu/economy-security-trade/the-economic-impact-of-the-strong-franc-on-the-swiss-economy/

3. Reuters, accessed from: https://www.reuters.com/business/finance/swiss-national-bank-cuts-interest-rates-zero-2025-06-19/

4. ING, accessed from: https://think.ing.com/articles/the-swiss-national-bank-cut-its-key-rate-to-0/

5. Trading Economics, accessed from: https://tradingeconomics.com/switzerland/2-year-note-yield

6. Govt. Of India, Press Information Bureau, accessed from: https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=154573&ModuleId=3

7. Money Control, accessed from: https://www.moneycontrol.com/stocks/marketstats/fii_dii_activity/index.php#google_vignette

8. CEIC Data, accessed from: https://www.ceicdata.com/en/india/government-securities-yield-the-clearing-corporation-of-india-limited/ccil-government-securities-yield-benchmark-10-years

9. Trading Economics, accessed from: https://tradingeconomics.com/united-states/government-bond-yield

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